With extreme market volatility, we all want reassurance that our KiwiSaver is managed with great care as markets go down. Markets have been hit hard with the S&P 500 falling 25% from its peak only 5 weeks ago.
To manage these difficult times, what do we think is important right now? Obviously, compassion as a community is critical, but for a moment let’s put the human element to one side. Here are our thoughts on KiwiSaver investing:
1 – Can a large KiwiSaver manager be nimble? A smaller manager can be much more nimble and can act quickly. There aren’t layers of committees for decision making. The five largest KiwiSaver providers each manage over $5 billion in KiwiSaver – how nimble are they?
2 – Does your KiwiSaver provider actually select and buy its stocks? If your KiwiSaver provider hands the money to an offshore manager to look after, or simply tracks an index, then they cannot closely control how it is invested. Do you know if your provider actually manages the money or out-sources this?
3 – Is your KiwiSaver provider an active manager? If you are in a passive fund you will be getting the full hit from markets going down. Passive means just ‘ride the wave’, which is fine when markets are going up – but you get dumped when markets go down. Passive investment should be cheap on fees but is very vulnerable when markets take a hit. The growth funds of 2 large passive managers (ASB and Simplicity) were down 12% to 14% from 31 January to 13 March – Pathfinder's Growth fund was down only 4%. That 8% to 10% difference is the benefit of active management.
4 – Does your KiwiSaver provider invest ethically? We believe that ethical companies are more resilient in a market downturn. If they have high environmental, social and governance (ESG) metrics they should fall by less when markets fall. ESG investing is core to the way we invest. What does “investing ethically” mean to your manager? Is this simply avoiding gambling, alcohol and tobacco? We think investing ethically is much more than this – and is a key part of our process for positively choosing companies (not just excluding them).
5 – Does your manager have too many stocks? The four main banks each have more than 1,600 exposures in their growth KiwiSaver funds. These are heavily diversified but they don’t look like handpicked portfolios – it looks more broad market exposure. By comparison, Pathfinder has less than 200 investments. We focus on fewer but quality and defensive stocks.
How many boxes does your KiwiSaver provider tick? The two largest bank KiwiSaver growth funds are down over 14% in the nearly 7 weeks since 31 January. Our Pathfinder Growth fund is down only 4% over the same period, meanwhile, our Conservative fund is actually up. Yes, you read that right, our Pathfinder Conservative fund is up over the crisis.
While we are focused on managing our investors’ savings in these challenging times, we are also very aware of the worry and stress in our communities. To the guy who very recently paid for my groceries at the checkout when I couldn’t find my wallet, thank you. Kiwis are caring and generous, which will support us through this difficult period. Take care.
Pathfinder Asset Management is the issuer. A Product Disclosure Statement is available at pathfinder.kiwi
John is committed to making ethical investment accessible to all NZ investors. Before co-founding Pathfinder in 2009 John worked in law firms and investment banks in Auckland, London and Sydney. He has a BCom/LLB(Hons) from Auckland University and is a board member of Men’s Health Trust.